Wednesday, February 17, 2016

The Power of Free Housing and Cheap Gas

I recently read a blog posted at the Institute for Faith,
Work, & Economics by Dr. Anne Bradley.It was entitled “The Lesson from
Venezuela:Making Things ‘Free’ Is No
substitute for Unleashing Human Creativity with Powerful Market Signals.”To be honest, I don’t think I have spent much
time thinking about Venezuela; I understand it as the oil rich county run by
Hugo Chavez, a socialist who described himself as a Marxist.Chavez was the President of Venezuela from
1999-2013, when he died.Using record
oil revenues, he was able to enact a series of social programs that made significant
reductions to poverty while improving literacy rates, income equality, and the
general quality of life between 2003 and 2007.

The focus of the blog I read looked, though, at the
long-term impact of the Chavez regime as well as the continuing policies of
Venezuela’s current President, Nicolas Maduro.Venezuela, based on having one of the largest oil reserves in the world,
was able to provide gasoline for two-cents and free gasoline.They did this successfully, too, until the
state-owned oil company changed priorities.Positions were filled through patronage, and investments necessary for
long-term productivity were ignored.Oil
production decreased, consequently, by 25% during the Chavez’s regime.This occurred at the same time that spending
on social programs continued to rise.

I mentioned in the first paragraph that there were marked
improvements in the quality of life during the period of 2003-2007.By 2005, the country reached a point where
they couldn’t keep up with the pace of increased spending solely by selling oil
(which was decreasing even while the price continued to rise), but was forced
to begin printing additional money.They
were able to keep up with their costs for several years this way, but 2014
marked a point where things spun out of control.Even with mandated price controls and a
series of government subsidies, data from the International Monetary Fund (IMF)
shows that Venezuela’s economy shrank by 10% in 2014 and 8% in 2015, while
inflation hit 68.5% and 141.5% for the same years and is project as high as
720% in 2016.

The blog mentioned that shortages are occurring in many
areas, three of which would be particularly troublesome to me:supermarkets were short on food, breweries
didn’t have ample supplies to make beer, and factories weren’t able to produce
enough toilet paper.The country found a
simple solution to long lines:limit who
is able to get in line based on the last digit in their ID card.The successes of the early years of the
Chavez regime have disappeared, with violence and poverty rapidly increasing in
Venezuela along with inflation.

There are many discussions that can be had about the
relative merits of different economic philosophies, and I leave you to
them.What I am more interested in is
seeing how we, and more particularly I, can learn from this story.A couple of the key problems that occurred in
Venezuela had to do with how people were selected for positions, a sacrificing
of long-term capabilities to cover short term needs, and avoidance of dealing
with problems (i.e. printing money, eventually hyperinflation, to fill the
funding gap rather than reducing expenditures).

We need to make sure that we hire well-qualified people who
have high integrity to fill positions.We
need to build realistic budgets that look at long-term consequences; if we don’t
adequately train our people, equip them with the proper, well-maintained
equipment, and adequately fund our infrastructure, we will have long term
problems.We need to identify budget
shortfalls quickly, and deal with them in a timely manner; simply ignoring them
will only lead to much larger problems in the future that may become
insurmountable.

As I look at our current community status, there are many
attributes that we are performing admirably on.Our long-term debt has stabilized over the past few years, while our
cash position has dramatically improved.Operationally, we have been fairly stable in regards to services
provided and have been able to continue to fund those operations at a steady
rate.Economically, our community has
seen significant positive news over the past few years as well.From an infrastructure perspective, though,
there are still concerns.We perform
street improvements annually and continue to make progress on our mandated
combined sewer separation work, but we are limited in what we can perform in
the short term without compromising our ability to meet our long term fiscal
health.From an infrastructure
perspective, our community is not alone.Water, sewer, road, and other related infrastructure needs face
pressures on a national basis to be able to adequately fund.

There are many arguments in this line of thought that can be
made, and good people with sincere beliefs will arrive at much different
answers to the problems.I will leave it
with a parting thought that I have come to a realization that there are a lot
of good things that government can do, but it cannot necessarily afford to do
all of them.We are left in a position
where we are forced to choose between various goods, and to try to do so wisely
in an arena where we need to seek compromise from a community of people who all
view this discussion in different ways.

My hope is that I learn from the promise of free housing and
cheap gas made in Venezuela.We can’t
deliver everything.We need to do the
best that we can with the limited resources we have, and be honest about those
discussions.